International taxation issues to consider - Part 1
Globalisation has had a profound impact on the modern business operating environment, whereby significant technological transformations especially over the last decade have given arise to increased international mobilisation of both staff and senior level management. We begin with the first of our three part series overview of ‘International Taxation Issues to Consider’ with a summary of taxation considerations with respect to individuals and companies.
1. For individuals coming to Australia, the following should be considered:
- Determining if they are an Australian resident. If they are a resident, there are CGT consequences and taxation of foreign sourced income to consider
- Whether the temporary resident rules apply, if full residency does not apply
- Any applicable double taxation agreements (DTA) if they are a resident of another country at the same time
- Foreign Superannuation they might have
- Withholding Taxes that may apply to foreign income
- Residents are taxed on all income at resident rates + Medicare Levy, non-residents are taxed on Australian income at non-resident rates with no Medicare Levy
- Visa Status
- International tax avoidance and attribution of income to Australia under CFC rules
- Relief from double taxation from exemptions or foreign tax credits (FITO)
“For individuals coming to Australia … determining if they are an Australian resident is crucial — because residency affects whether foreign-sourced income and CGT on foreign assets are taxed.”
2. For individuals leaving Australia:
- Residency status where a person leaves Australia. If they cease their residency, there are CGT consequences and foreign sourced income is no longer assessable
- DTA issues if they have residency in more than 1 country
- Taxation of income earned by non-residents
- International tax avoidance
- Impact on SMSFs
- Possible exemption for foreign employment income
- CGT issues on departing Australia. It is possible to defer CGT on becoming a non-resident to the actual disposal date
- Relief from double taxation from exemptions for foreign tax credits (FITO)
3. Residence of individuals determined by 4 legal tests (s6 ITAA 1936):
- Person is “residing” in Australia, according to ordinary concepts – main test
- Domicile and Permanent Place of Abode of the person
- 183-day test, unless it is established the usual place of abode is outside Australia
- Eligible Employee for the purposes of the Superannuation Act 1976
4. An individual is a temporary resident if they:
- Hold a temporary visa granted under the Migration Act 1958
- Not an Australian resident under the Social Security Act 1991
- Spouse is not an Australian resident under the Social Security Act 1991.
5. Removal of 50% CGT Discount for non-residents/temporary residents:
- The 50% CGT Discount is removed for assets acquired by non-residents/temporary residents after 08/05/2012
- If an asset is acquired before 08/05/2012 and a valuation is obtained at 08/05/2012, may apply discount to portion of gain accrued up to 08/05/2012.
6. A company is considered an Australian resident if it is:
- Incorporated in Australia, or
- Carries on a business in Australia and has Central Management & Control in Australia, or
- Carries on a business in Australia and its voting power is controlled by shareholders who are Australian residents
If you have questions on any of the above issues raised, please do not hesitate to contact us.
Kim Edwards
Accountant
T: 02 9984 7774
E: kime@northadvisory.com.au
“If you leave Australia and cease tax residency, there are potential capital gains tax implications — so timing of departure and residency status require careful planning.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
Residency status is the primary driver of tax obligations — get it right early.
Whether you’re classified as an Australian resident, temporary resident or non-resident determines whether your global income and foreign assets are taxed in Australia.
Moving to Australia can turn foreign income and assets into taxable items.
Foreign-sourced income, overseas investments or foreign superannuation may become assessable or subject to CGT once you are resident.
Leaving Australia — or changing residency status — requires careful tax planning to manage CGT and income obligations.
Ceasing residency can trigger CGT events, affect tax treatment of foreign income, and change how future income is taxed.
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Frequently Asked Questions
What happens for people arriving from overseas — how does residency status affect tax?
When you move to Australia, you need to determine whether you’re treated as an Australian tax resident. If so, you’re generally taxed on your worldwide income (including foreign-sourced income), and foreign assets may trigger capital gains tax (CGT) consequences.
What are “temporary resident rules” and when might they apply?
If someone moves to Australia but does not meet the full residency criteria, they may qualify as a temporary resident. Under those rules, their tax obligations may differ (for example, foreign-source income or certain assets might be treated differently than for full residents).
Do double taxation agreements (DTAs) play a role when coming to or leaving Australia?
Yes — when individuals have ties to more than one country, a DTA may determine which country has taxing rights over income or gains. This helps avoid being taxed twice on the same income or asset.
What tax issues arise on leaving Australia and ceasing residency?
On departure, ceasing residency can trigger CGT events on certain assets, and foreign-sourced income may no longer be taxed in Australia. Understanding when and how residency ceases is vital to avoid unexpected tax liabilities.
What should individuals with foreign superannuation or foreign investments consider when moving to Australia?
They need to evaluate how foreign superannuation, foreign-source income or other overseas investments will be treated under Australian tax law — including whether they become assessable, or subject to CGT or withholding taxes.
How does residency affect my tax obligations in Australia?
Residents are taxed on their worldwide income (including foreign income) and may be liable for the Medicare Levy, whereas non-residents are taxed only on Australian-sourced income without the Medicare Levy. DTAs may change how income is taxed if you’re resident in more than one country.
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